“Microfinance sector – one of the most developed of the impact investment sectors.”
Microfinance provides financial services to low-income individuals lacking access to the formal banking sector. Microfinance is an instrument that, under the right conditions, fits the needs of a broad range of the population – including the poorest – those in the bottom half of people living below the poverty line. It is an important tool to have a direct influence on 6 of the Millennium development goals.
The first microfinance institutions (MFIs) were nonprofit organizations with a social mission to alleviate poverty by helping the poor develop vocational and business management skills, and by giving them small, uncollateralized loans for working capital. As MFIs have transformed from non-profit organizations to regulated entities and have proven their investment viability, microfinance funding has transitioned from primarily philanthropic to investor sources, and the flow of capital to the sector has grown dramatically, via direct investment in MFIs and indirect investment in microfinance investment vehicles.
The microfinance sector presents a unique investment opportunity for investors seeking social impact and financial profit, from double bottom line to triple bottom line impact. It compares favorably to other interventions particularly with regard to cost effectiveness and prospects for sustainability.